China and Japan’s economies are expected to slow sharply over the next two years but Asian growth is set to remain strong as domestic demand takes up the slack from weak global trade, the IMF said yesterday.
Government stimulus measures, lower commodity prices and low unemployment would help drive regional expansion, the IMF said, and called on leaders to push on with reforms.
However, in its Regional Economic Outlook for Asia and the Pacific, the Fund also warned of several external challenges — from weakness in advanced economies, weak global trade and increasingly volatile global financial markets.
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“Asia remains the most dynamic part of the global economy but is facing severe headwinds from a still weak global recovery, slowing global trade, and the short-term impact of China’s growth transition,” the IMF said.
“To strengthen its resilience to global risks and remain a source of dynamism, policymakers in the region should push ahead with structural reforms to raise productivity and create fiscal space while supporting demand as needed,” the IMF added.
The IMF predicted growth in Asia of 5.3 percent this year and next, down from its previous forecast of 5.4 percent. China’s economy, the world’s second biggest and a crucial driver of global growth, is tipped to expand 6.5 percent this year — the lower end of Beijing’s target — and 6.2 percent next year.
The figures are well down from the 6.9 percent seen last year, which was the slowest rate in a quarter of a century, but slightly better than the IMF’s October last year outlook.
“While Asia remains the global growth engine, the external environment is becoming much more difficult,” the IMF’s Asia and Pacific Department director Changyong Rhee told reporters yesterday.
The IMF warned of the spillover effects of China’s slowing growth on other economies that rely on the country to drive their own expansion, including weaker trade and commodity prices.
“Overall, the region has become more sensitive to the Chinese economy,” it said.
“When the China stock market moved quite significantly ... the financial spillover was higher in countries with strong trade links with China,” Rhee said.
Rhee also said that policymakers would have to balance the expansion of credit with the strain it could cause to corporates and banks.
“We have to build strength during turbulent times,” he said.
Japanese growth is tipped to slow, with the IMF saying exporters would be hit by the strengthening yen — which is at 18 month highs against the US dollar — and slowing trade with China.
It halved its growth outlook for Japan to 0.5 percent this year and tipped it to shrink 0.1 percent next year owing to an expected consumption tax rise, while it also cited the long-running problem of an aging population and a huge debt mountain.
The lower outlook comes days after the Bank of Japan refused to ramp up its stimulus program despite a string of weak data that have raised questions about Japanese Prime Minister Shinzo Abe’s faltering drive to boost growth.
The report said India would grow 7.5 percent this year and next, unchanged from its previous prediction and the fastest rate among the world’s big economies, as low oil prices, government investment and a pick-up in domestic consumption offset weak exports.
In South Korea, growth was forecast to rise to 2.7 percent this year and 2.9 percent next year — up from 2.6 percent last year and again boosted by domestic demand.
Australia’s growth is expected to remain stable at 2.5 percent this year and pick up next year.
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